By all accounts it appears a renaissance is underway in the global airfreight market. IATA’s 2017 data through April indicates a simple average freight tonne kilometer (FTK) growth of over 9.0% while available freight tonne kilometer (AFTK) average growth of just shy of 3.0%. With May data due soon, Cargo Facts anticipates double digit growth. Indeed, IATA may adjust its second quarter FTK forecast a bit higher from its original 7.5%.
Not surprising, IATA credits inventory draw down and strong export orders as the major contributors of this growth. We at Logistics Trends & Insights suspect that cross-border e-commerce is also contributing to not only inventory replenishment but also individual consumer demands.
Airfreight & Cross-Border E-Commerce
Indeed, we, Logistics Trends & Insights, along with over 3,000 US small-to-medium size businesses (SME), attended Alibaba’s Gateway 17 conference in Detroit to learn more about expanding US businesses to China via Alibaba’s online platforms. Quite the show as the likes of UPS CEO, David Abney and Martha Stewart spoke of the great opportunities in China for SME.
Afterwards, we flew to Washington DC to testify to the US-China Economic and Security Review Commission on China’s logistics and e-commerce markets. The most important recommendation we made was for faster, efficient and transparent cross-border e-commerce. The way of conducting business is now via e-commerce and the days of separating B2C and B2B are over – folks want the same online experience regardless and they want their goods yesterday not one to four weeks. It does not matter where the goods are originating from, folks want them now. Alibaba’s goal, for example, is 72 hour delivery for its cross-border service – from the moment the item is ordered to the front door all within 72 hours.
As such, Alibaba has lined up an impressive array of logistics and delivery partners including UPS. In fact, UPS and SF Express, another Alibaba partner, announced a strategic partnership in which both companies will work first along the China-US route with SF Express handling last mile delivery in China on behalf of UPS and UPS the same in the US on behalf of SF Express. If successful, it is likely their cooperation will expand further.
In comparison, in 2016, Amazon leased 40 Boeing 767 freighter jets from Atlas Air Worldwide Holdings Inc. and Air Transport Services Group Inc. However, these were for the domestic US market. For cross-border, Amazon has utilized its delivery partners; but, according to its Amazon Logistics website, “We currently are developing (air freight) service, and plan to quickly introduce it to a large number of our sellers.” Amazon Logistics targets sellers in China who offer products through Amazon or other businesses. It already offers ocean freight services through its NVOCC license.
In preparation of rising cross-border trade, UPS announced the purchase of fourteen 747-8 Boeing freighters with options to purchase fourteen additional aircraft in October 2016. Earlier in 2016, DHL Express awarded ST Aerospace a cargo conversion of four A330 aircraft with options for an additional ten conversions.
After a strong first quarter 2017, with UPS international export average daily volumes up 14.2% and DHL Express’ time definite international volumes up 8.0%, both integrators announced additional aircraft contracts at the Paris Air Show. UPS and Boeing announced an agreement to convert three 767 passenger airplanes into converted freighters. Meanwhile, DHL Express and ST Aerospace announced an extension of their partnership of more A330 conversions.
Speaking at the Alibaba conference, UPS CEO, David Abney noted that 77% surveyed for UPS’ Pulse of the Online Shopper annual paper, want cross-border duties and fees clearly stated. Indeed, transparency as a part of digitization was identified as a mandate by IATA during its 73rd Annual General Meeting (AGM). The association adopted a resolution to accelerate the modernization and transformation of the air cargo industry. Its recommendations include:
- The digitization of the supply chain to allow all information to be shared instantly, improving efficiency and simplifying the transport process.
- Adopt modern and harmonized standards that facilitate safe, secure and efficient operations, particularly in relation to carriage of dangerous goods.
- Use enhanced technology to provide customers with responsive services based on intelligent systems able to self-monitor, send real-time alerts and respond to deviation.
- Harness the power of data to drive efficient and effective industry quality improvements.
Recommendations for governments include:
- Implement the TFA so that its benefits such as harmonized rules for expediting the movement, release and clearance of goods crossing borders and the acceptance of e-payments and electronic documentation can be realized.
- Develop smart regulations that improve the safety and security of the air cargo supply chain and facilitates the efficient transport of goods.
According to eMarketer, global cross-border e-commerce is forecasted to grow at an average of 22% from 2015 to 2020 compared to 15% for U.S. e-commerce during the same time period. This anticipated growth will affect supply chains in such ways as inventory replenishment, direct to consumer/business delivery and more. As such, transparency in tracking, billing and payment will be critical and of course, expectations of faster speed of delivery.